Home » A UK-regulated liability network is planning to conduct trials involving a digital pound in the form of tokenized deposits.

A UK-regulated liability network is planning to conduct trials involving a digital pound in the form of tokenized deposits.

Exploring Use Cases and Technology for the UK Regulated Liability Network

by V. Sinclair
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The Regulated Liability Network (RLN) attracted a lot of attention in the US earlier this year thanks to court cases involving many banks, Mastercard, and the New York Federal Reserve. In the near future, the UK’s Regulated Liability Network will test a retail digital pound that will be backed by tokenized deposits or cash from commercial banks. RLN functions as a blockchain network for managing different digital assets and conducting interbank payments.

Building on their prior work, this represents another venture for the UK Regulated Liability Network. Cross-border payments were the topic of a proof of concept that EY organized in the UK last year. It was comparatively low-profile in terms of publicity, much like the impending project.

The three biggest banks in the UK have confirmed that they will be taking part in this initiative: HSBC, Barclays, and Lloyds. They Santander UK and Visa have also joined us, and EY is in charge of the initiative on behalf of the trade group UK Finance. They published a document today outlining their efforts without mentioning the partner banks by name.

In a statement expressing enthusiasm for the ongoing agreement, Peter Left from Lloyds Banking Group said, “We are eager to extend this partnership, enhancing the intelligence of all regulated currency, including the pound, to benefit our customers.”


For each member bank and for central banks, separate “partitions” or smaller networks are created within the RLN framework. Although the UK RLN participants looked at alternate methods, interbank payments are settled using the central bank’s partition.

The UK Regulated Liability Network evaluated three prospective use cases during this Discovery Phase by carefully considering their commercial components, technological needs, and regulatory issues. Retail digital pounds, wholesale B2B cross-border payments, and securities settlement were the applications that were being examined.

Retail digital pound chosen out of three use cases

It might not be the most obvious choice to pursue the consumer payments use case during the experimental phase. The ‘functional constancy’ of money was, nonetheless, a key justification for this decision. The Bank of England has stated that there is a probability of over 50% for the introduction of a retail central bank digital currency (CBDC), with programmability provided by third parties. Therefore, commercial bank money must also have programmable elements in order to ensure uniformity in the UK’s monetary system. Without it, a CBDC might sabotage the stability of the money supply.

According to our understanding, a CBDC might start to appeal to both businesses and consumers without the programmability of commercial bank money. Additionally, the high holding restrictions (£10-£20,000 or $13-$26,000) planned by the central bank have raised problems with UK Finance in the past,bank for the CBDC of the digital pound. Therefore, the RLN might aid in leveling the playing field.

Recently, a paper on functional consistency was published by Barclays. According to the analysis, the programmability function should be housed within a financial market infrastructure. This might include the RLN even if it doesn’t specifically mention any institutions.

According to our perspective, PayUK might host the programmability component in order to create uniformity. Several UK payment infrastructures are run by Pay UK. Additionally, tokenized deposits and a CBDC digital pound might use the same programmability infrastructure provided it hosted the functionality. By extending that reasoning, Pay UK might run the RLN.

The early stages of retail tokenized deposts would require simulating a large number of merchant participants. The RLN suggested the possibility of building on Project Rosalind, the Bank of England’s digital pound initiative.

Tokenized deposits for cross border, securities settlement

Out of the three use cases for the UK Regulated Liability Network, wholesale cross-border payments were the least feasible. The RLN participants acknowledged the potential advantages of increased cost-effectiveness, 24/7 accessibility, and risk reduction. Cross-border payments are, however, thought to be more difficult because foreign regulators must be involved.

The fact that at least three RLN participants—Barclays, Lloyds, and Santander—are also involved in Fnality is a point that is left out of the paper. That is a UK-based infrastructure that uses a different approach from RLN to target token-based wholesale cross-border payments. As a result, there would be a lot of purpose duplication if RLN pursued the same use case. However, people involved in both initiatives also have a front-row seat to the regulatory difficulties.

Along with an API connected to the real-time gross settlement system (RTGS) and a wholesale CBDC, Fnality is seen as one of the potential RLN settlement assets.

Additionally, Fnality and the third securities settlement use case have some overlap. Due to the UK’s Digital Securities Sandbox, the RLN participants think it is a favorable timing opportunity. The RLN will be used specifically for the post-trade settlement of repurchase agreements (repos). One of the use cases for regulated DLT that is presently gaining the most interest is repo.

The RLN offers 24/7 liquidity, efficient settlement, and automated margining, among other benefits. However, the inclusion of non-bank organizations like central securities depositaries (CSD) put it into the medium feasibility category.

Blockchain is anticipated to be used by UK RLN.

Comparing whether to use a centralized or decentralized technology as part of the Discovery Phase’s work led to a preference for DLT. Tokenization, integrity, openness, and privacy were cited as the justifications.

Different technologies, such as Corda (R3), Adhara, Millicent, Quant, Polygon, Canton (Digital Asset), Setl, and Knox, were evaluated. Additionally, they examined additional systems including Quorum, Parity, and Hyperledger Besu.

However, no decisions on the tech providers were shared by the participants. The RLN idea, which Setl and Citi are said to have developed, has been under development by Setl and Digital Asset for more than a year.


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